Inflation affects fewer sectors of the economy. This does not mean that life becomes cheaper.
Only about 38% of the roughly 175 categories of the Consumer Price Index have increased at an annual rate greater than 3% over the past six months, according to Yahoo Finance calculations using data from the Bureau of Labor Statistics (BLS). That’s down from 56% in May and the lowest level since spring 2025.
The count borrows a test from Fed Chairman Kevin Warsh, who presented it at Jackson Hole in August. It counts how many categories of the Fed’s preferred PCE price gauge are rising faster than 3%, an indicator of the extent of inflation. The Fed’s target is still 2%.
“Too many categories are still showing increases above 3% over six and 12 months,” Warsh said after the Fed raised rates in September.
In this regard, September turned out to be better than its warmer-than-expected title. The 12-month tally fell to about 47%, down from 51% in August. At the 2022 peak, about 4 out of 5 categories were above 3%. In the two decades before the pandemic, about one in three people typically did so.
A narrower spread strengthens the case for waiting, and traders have leaned in that direction. The bond market puts the odds of a hike at the Oct. 27-28 meeting at around 17% as of Friday’s close, according to Bloomberg data, down from around 33% reported Wednesday. Warsh declined to provide insight into his next move during his remarks Friday before the International Monetary Fund.
Some Fed officials want more evidence before acting. Chicago Fed President Austan Goolsbee called the September inflation report discouraging, but told Yahoo Finance’s Jennifer Schonberger he preferred to wait before acting again. “We need more data,” he said.
Recalcitrant categories are the most expensive
Electricity, rents, hospital services and auto repairs have all increased faster than 3% over the past six months, after adjusting for seasonal variations. Gasoline is up about 34% from a year ago. Together, the categories still above the line account for at least 60% of the CPI basket, which the BLS weights based on the amount households spend on each item.
The grocery store shows the other side of the problem. Food prices have increased by less than 2% over the past year, but are still up almost a third since December 2019. Electricity has increased by 43% over the same period.
Slower inflation means prices rise more slowly. This won’t bring them down and the Fed has no plans to return to 2019 prices.
Not everyone sees progress. “There is little evidence of a cooling or broad-based disinflationary impulse,” Joe Brusuelas, RSM’s chief economist, wrote Wednesday, pointing to trade, energy and AI as sources of stubborn price pressure. He expects a further increase of a quarter point in December.
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